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Picking funds in China

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  • Zhang, Yu
  • Zhao, Mengxiang

Abstract

This study compiles data on actively managed mutual funds in China spanning from 2007 to 2020 to construct portfolios of superior funds using the Fund Confidence Set (FCS) algorithm. Time-varying alphas and betas are estimated using an adaptive unscented Kalman filter with maximum posterior and random weighting rather than the extended Kalman filter. Moreover, an exponential smoother is integrated into the FCS algorithm, leading to improvements in portfolios’ performance. These two modifications to the FCS algorithm further enhance the performance of superior fund portfolios, producing an average monthly excess return of up to 1.88 %.

Suggested Citation

  • Zhang, Yu & Zhao, Mengxiang, 2024. "Picking funds in China," Finance Research Letters, Elsevier, vol. 67(PA).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pa:s154461232400847x
    DOI: 10.1016/j.frl.2024.105817
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    References listed on IDEAS

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    1. Grønborg, Niels S. & Lunde, Asger & Timmermann, Allan & Wermers, Russ, 2021. "Picking funds with confidence," Journal of Financial Economics, Elsevier, vol. 139(1), pages 1-28.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fund portfolio; Four-factor model; Fund confidence set; Kalman filter;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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